HyperLiquid has announced a series of risk management improvements following an incident involving its HLP vault, compensating JELLY long position holders.
What Happened?
The incident involved a trader allegedly manipulating the price of JELLY, leading to significant unrealized losses for the HLP, a market-making vault within HyperLiquid. The trader held $4.85 million worth of JELLY and combined a short position on HyperLiquid with on-chain spot buys, triggering a liquidation event that transferred the short position to HLP. The price surge caused temporary unrealized losses of $13.5 million for HLP. HyperLiquid closed the JELLY market at $0.0095. This decision sparked questions within the crypto community about its legality.
HyperLiquid’s Risk Management Updates
In response to these events, HyperLiquid has announced several key changes to its risk management systems. First, the Liquidator vault will have stricter limits, be rebalanced less often, with a more advanced system to handle liquidations. Second, automatic deleveraging will activate only if losses exceed a certain limit. Open interest caps will be dynamically adjusted. Finally, an on-chain voting system will allow validators to decide on assets falling below certain thresholds.
Community Reaction
Bitget CEO Gracy Chen and the community have criticized HyperLiquid's decisions, triggering debates on decentralization. Concerns include mixed vault risks and a lack of transparency. Arthur Hayes, co-founder of BitMEX, also questioned HyperLiquid’s decentralization claims.
HyperLiquid is making changes to its risk management to bolster resilience and market responsiveness. The community continues to actively discuss these decisions.
